Title: Stakeholder Theory
Submitted by: Alexander Ott
Alternate Names:
Central Tenets:
Freeman (1984) defines a stakeholder in broad terms as any group or individual who can affect or is affected by the achievement of an organization’s purpose. Stakeholder theory is an approach to organizational management and governance that emphasizes the importance of considering organizational stakeholders when making leadership decisions. By calling on organizations—corporations, schools, universities—to give attention to those affected by organizational actions, stakeholder theory makes an explicitly moral claim (Phillips, Freeman, & Wicks, 2003). Stakeholder theory is far more, however, than simply a call for organizational ethics. Freeman argues that attention to stakeholders is essential to effective strategic management in an increasingly complex world characterized by multiple groups and individuals that affect and are affected by organizational actions.
A major issue in stakeholder strategic management is how to balance the interests of stakeholders when deciding on the distribution of organizational outputs. While stakeholder theory does not provide clear guidance on this issue, it does provide some tools. For example, Phillips (2003) makes a clear distinction between what he calls “normative” stakeholders, those to whom a moral obligation is due, and “derivative” stakeholders, which are other groups and individuals who warrant attention on the basis of their ability to affect the organization. This distinction can be helpful when weighing competing stakeholder claims on organizational outputs.
In addition to focusing on the distribution of organizational outputs, stakeholder theory calls attention to organizational process. That is, as important as what a stakeholder group receives from an organization is the process by which key organizational decisions are made (Phillips, Freeman, & Wicks, 2003). For example, do major stakeholders have voice in the decision-making process, are they provided essential information about the decisions being made, and do they judge the decision-making process to be fair? While organizational outputs are inherently a zero-sum game (one group’s gain is another’s loss), voice in decision making is not limited in this way. And the more voice and information that is given to stakeholders, the fairer stakeholders tend to find the process (Phillips, Freeman, & Wicks).
References:
Ehrensal, P. A. L., & First, P. F. (2008). Understanding school board politics: Balancing public voice and professional power. In B. S. Cooper, J. G. Cibulka, & L. D. Fusarelli (Eds.), Handbook of education politics and policy (pp. 73–88). New York: Routledge.
Freeman, R. E. (1984). Strategic management: A stakeholderapproach. Marshfield, MA: Pitman Publishing.
Freeman, R. E., & Reed, D. L. (1983). Stockholders and stakeholders: A new perspective on corporate governance. California Management Review 25(3), 88–106.
Phillips, R. (2003). Stakeholder legitimacy. Business Ethics Quarterly13(1), 25–41.
Phillips, R., Freeman, R. E., & Wicks, A. C. (2003). What stakeholder theory is not. Business Ethics Quarterly13(4), 479–502.
References applying the framework:
Gibbs, P., Zopiatis, A., & Iacovidou, M. (2009). An exploratory use of the stakeholder approach to defining and measuring quality: The case of a Cypriot higher education institution. Quality in Higher Education 15(2), 147–165.
Gordon, M. F., & Louis, K. S. (2009). Linking parent and community involvement with student achievement: Comparing principal and teacher perceptions of stakeholder influence. AmericanJournal of Education 116(1), 1–32.
Hauser, G. M., Choate, K., & Thomas, T. P. (2009). A two-year study of stakeholder perceptions associated with the transition from 8th grade to high school. International Journal of Learning16(3), 315–326.
Powell, B. (2008). Stakeholders’ perception of who influences the decision-making processes in Ontario's public postsecondary education institutions. Higher Education Research &Development 27(4), 385–397.
Ruch-Ross, H. S., Mason, M., William, D., & Cartland, J. (2008). Role sharing between evaluators and stakeholders in practice. American Journal of Evaluation29(4), 460–477.
Tincher-Ladner, L. (2009). A best practice for selecting your QEP: Techniques for facilitating mission-based stakeholder involvement in the selection of the institutional quality enhancement plan. Community College Journal of Research and Practice33(8), 622–625.
Submitted by: Alexander Ott
Alternate Names:
Central Tenets:
Freeman (1984) defines a stakeholder in broad terms as any group or individual who can affect or is affected by the achievement of an organization’s purpose. Stakeholder theory is an approach to organizational management and governance that emphasizes the importance of considering organizational stakeholders when making leadership decisions. By calling on organizations—corporations, schools, universities—to give attention to those affected by organizational actions, stakeholder theory makes an explicitly moral claim (Phillips, Freeman, & Wicks, 2003). Stakeholder theory is far more, however, than simply a call for organizational ethics. Freeman argues that attention to stakeholders is essential to effective strategic management in an increasingly complex world characterized by multiple groups and individuals that affect and are affected by organizational actions.
A major issue in stakeholder strategic management is how to balance the interests of stakeholders when deciding on the distribution of organizational outputs. While stakeholder theory does not provide clear guidance on this issue, it does provide some tools. For example, Phillips (2003) makes a clear distinction between what he calls “normative” stakeholders, those to whom a moral obligation is due, and “derivative” stakeholders, which are other groups and individuals who warrant attention on the basis of their ability to affect the organization. This distinction can be helpful when weighing competing stakeholder claims on organizational outputs.
In addition to focusing on the distribution of organizational outputs, stakeholder theory calls attention to organizational process. That is, as important as what a stakeholder group receives from an organization is the process by which key organizational decisions are made (Phillips, Freeman, & Wicks, 2003). For example, do major stakeholders have voice in the decision-making process, are they provided essential information about the decisions being made, and do they judge the decision-making process to be fair? While organizational outputs are inherently a zero-sum game (one group’s gain is another’s loss), voice in decision making is not limited in this way. And the more voice and information that is given to stakeholders, the fairer stakeholders tend to find the process (Phillips, Freeman, & Wicks).
References:
Ehrensal, P. A. L., & First, P. F. (2008). Understanding school board politics: Balancing public voice and professional power. In B. S. Cooper, J. G. Cibulka, & L. D. Fusarelli (Eds.), Handbook of education politics and policy (pp. 73–88). New York: Routledge.
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Marshfield, MA: Pitman Publishing.
Freeman, R. E., & Reed, D. L. (1983). Stockholders and stakeholders: A new perspective on corporate governance. California Management Review 25(3), 88–106.
Phillips, R. (2003). Stakeholder legitimacy. Business Ethics Quarterly 13(1), 25–41.
Phillips, R., Freeman, R. E., & Wicks, A. C. (2003). What stakeholder theory is not. Business Ethics Quarterly 13(4), 479–502.
References applying the framework:
Gibbs, P., Zopiatis, A., & Iacovidou, M. (2009). An exploratory use of the stakeholder approach to defining and measuring quality: The case of a Cypriot higher education institution. Quality in Higher Education 15(2), 147–165.
Gordon, M. F., & Louis, K. S. (2009). Linking parent and community involvement with student achievement: Comparing principal and teacher perceptions of stakeholder influence. American Journal of Education 116(1), 1–32.
Hauser, G. M., Choate, K., & Thomas, T. P. (2009). A two-year study of stakeholder perceptions associated with the transition from 8th grade to high school. International Journal of Learning 16(3), 315–326.
Powell, B. (2008). Stakeholders’ perception of who influences the decision-making processes in Ontario's public postsecondary education institutions. Higher Education Research & Development 27(4), 385–397.
Ruch-Ross, H. S., Mason, M., William, D., & Cartland, J. (2008). Role sharing between evaluators and stakeholders in practice. American Journal of Evaluation 29(4), 460–477.
Tincher-Ladner, L. (2009). A best practice for selecting your QEP: Techniques for facilitating mission-based stakeholder involvement in the selection of the institutional quality enhancement plan. Community College Journal of Research and Practice 33(8), 622–625.